RSSMore than 100 congressional Democrats have sent two letters to the Consumer Financial Protection Bureau in support of its proposed ban on mandatory arbitration clauses in contracts.
In a letter organized by Senate Minority Leader Harry Reid (D-Nev.), and Senators Al Franken (D-Minn.), Patrick Leahy (D-Ver.), and Sherrod Brown (D-Ohio), 38 signers expressed support for the ban, which also would limit class-action waivers, citing “the expansive harms of forced arbitration.” Such clauses are used by “banks and financial companies…to prevent consumers from raising disputes in court individually or as a class, which might otherwise deter practices that harm consumers,” the letter said.
The letter from House Democrats was organized by Representatives Maxine Waters (D-Calif.), Hank Johnson (D-Ga.), and John Conyers (D-Mich.). In it, 65 representatives encouraged the CFPB to “proceed quickly,” calling the rule a “critical step to protect public interest.” Signers to the letter claimed that “by restricting class actions and class-wide arbitration in consumer contracts, these clauses enable corporations to avoid public scrutiny by precluding access to the courts.”
The CFPB said mandatory arbitration clauses were included in “hundreds of millions of consumer contracts.” A 2015 agency study showed such clauses were used by 53 percent of credit-card issuers, 86 percent of the largest private student loan lenders, and 44 percent of banks taking insured deposits. The clauses also were included in 92 percent of prepaid card agreements and 99 percent of payday loan contracts in some states.
The CFPB proposed the ban in May after consistently suggesting that requiring consumers to enter into arbitration effectively blocks the consumer’s ability to sue, which would “deny customers their day in court.”
The ban on such clauses drew criticism when it was proposed in May. According to the CFPB’s own study of the issue, class action lawsuits typically reward plaintiffs’ lawyers handsomely, give consumers little compensation and take years to pay out.
Comments on the proposal are open until Aug. 22.
